What could be worse than a ban for Britain’s frackers?

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In the (admittedly unlikely) event that Britain elects a Labour government on 8 June, one of its first acts will be to outlaw fracking. Understandably, this has increased political opposition from the fracking industry, which will take comfort from the apparent lead that the Tory party enjoys in the polls.

The irony is that the industry may well be even worse off in the event of a Tory landslide than they would be under a Labour-led coalition (probably the best outcome Labour can expect in June). This is because a Tory landslide will remove their excuses. That is, at present the small government majority (and the need to focus on Brexit) means that there is little political capital to be made from ramming fracking down the throats of communities that are largely hostile. For the most part, government has preferred to leave decisions about fracking to local authorities; only intervening to reverse decisions that go the wrong way. However, with a 50-100 seat majority in parliament, and faced with the closure of coal plants and an increasing reliance on electricity imports, a new Tory government will be expected to sweep away any remaining obstacles and go flat out to frack every shale deposit they can get their hands on.

This is where things get tricky for the industry. Up until now, they have been able to blame their failure to extract a single profitable BTU of gas from beneath the British Isles on the various bureaucratic impediments to shale drilling. A few even tip their hat at the various protest groups as adding to their woes (although anyone who remembers how the last – Thatcher – big majority Tory government dealt with protests will know what to expect in the event of the Tories winning a similar majority). Crucially, however, these impediments have allowed the fracking companies to maintain the fiction that there is a fortune in shale gas just waiting for someone to come along and invest in it.

Take away the excuses for not drilling, and the frackers will be obliged to put up or shut up. Investors will no longer be interested in promises of future riches. Instead, they will expect to see real rigs producing real gas that can be sold for a profit. And there’s the rub; because so far – and despite a lot of trying – nobody has managed to produce profitable shale gas in anywhere in Europe. The Danes tried and failed, so did the Baltic States and the Poles. But the geology either prevents extraction altogether or makes it so difficult (and expensive) that it cannot be done profitably. There is no reason to believe that Britain’s fractured and tortured geology will produce different results.

It is in this light that we should consider Barclay’s decision to sell its 97 percent holding in Third Energy – the fracking company that was given the go-ahead to frack an existing gas well in Kirby Misperton, North Yorkshire. As we pointed out when the company was given permission to frack:

“Why this? Simply because hydraulically fracturing the KM8 well is about the cheapest operation any company could carry out with the best prospect of a return on investment. The well has already been drilled. According to David Wethe at Bloomberg, fracking an existing well costs around $20 million, whereas drilling a well from scratch costs $80 million. Other costs are minimised too. Because KM8 is in an already producing conventional gas field, the infrastructure to bring water to the site and take waste away; and the pipeline to take gas from the well to the nearby gas fired power station at Knapton already exists. Importantly, KM8 sits in an apparent sweet spot at the heart of the Bowland shale formation – the most promising source rock in the British Isles. There is more chance of extracting profitable shale gas from KM8 than anywhere else on the UK mainland. And if Third Energy can’t pull this off, then the rest of the industry is toast.”

Campaign groups have claimed victory for the Barclays’ decision, claiming it is part of a wider campaign to get Barclays to divest from all fossil fuels. However, Barclays themselves deny this. In a statement on their website they make clear that they continue to support fracking in principle on the grounds that it is better for the environment than other fossil fuels. Moreover, they claim that Third Energy’s activities meet all of the regulatory standards in relation to public health, ground water, transportation and impact on the local economy. In short, environmental concerns do not explain the Barclays decision. Which bring us to something else we said when Third Energy were given permission to frack:

“So why now? The short answer is it is getting late in the day and there is worthless paper to sell to greedy investors. The mainstream media has yet to pick up on the catastrophe that is spreading through the US shale patch. Companies are going bust. Former boomtowns have been turned into ghost towns. And there is every chance that a collapsing energy industry will spread into the banking and finance sector…

“When this news gets into the mainstream media, investors are going to be bailing out of fracking in droves. So the fracking industry desperately needs to engineer some good news to keep the bubble going.”

Barclays decision to get the Third energy investment off its books is further evidence that investors – at least big institutional ones – are all too aware of which way the wind is blowing for fracking. The economic case simply doesn’t stack up. It is not that the gas isn’t there; it is just that nobody can extract it at a price that anyone would buy it. Geologists have suspected as much ever since the government latched onto fracking as a means of reversing Britain’s energy decline. Smart investors have also suspected as much for some time now. Even Barclays now appears to be bailing out. And in the event that a Tory government with a large majority clears the way for full-scale drilling, it will not be long before the whole fracking house of cards comes tumbling down.